SEZL Q3 Deep Dive: Subscription Pivot and AI Drive Growth Amid Margin Compression

Buy-now-pay-later service Sezzle (NASDAQCM:SEZL) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 67% year on year to $116.8 million. Its GAAP profit of $0.75 per share was 15.4% above analysts’ consensus estimates.

Is now the time to buy SEZL? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Sezzle’s third quarter results surpassed Wall Street expectations, led by 67% year-on-year revenue growth and a GAAP profit that exceeded analyst forecasts. Management attributed this performance to increased consumer engagement and the expansion of subscription-based offerings, while also highlighting the impact of new features like the Earn tab. CEO Charles Youakim noted, “We just posted revenue growth of 67% year-on-year in Q3. Our net income margin for the quarter was over 22%.” Despite rapid top-line growth, management acknowledged that expanding underwriting criteria and elevated marketing spend contributed to lower operating margins.

Looking ahead, Sezzle’s guidance is shaped by a renewed emphasis on driving subscription growth and optimizing its product mix to favor higher lifetime value users. Management also pointed to ongoing investments in artificial intelligence and forthcoming product launches as key pillars for future expansion. CFO Karen Hartje stated, “We’re reaffirming our guidance for top line growth and adjusted net income with modest adjustments to our GAAP net income,” and emphasized continued cost discipline and careful monitoring of economic conditions to sustain profitability.

Key Insights from Management’s Remarks

Sezzle’s management identified the shift from on-demand to subscription products and the integration of new AI-driven features as core drivers behind the quarter’s outperformance and evolving business strategy.

• Subscription strategy pivot: Management shifted marketing resources back to subscription products after observing that on-demand users had lower lifetime value and conversion rates. This move resulted in subscriber growth, with 568,000 subscribers at quarter-end, and is expected to drive more sustainable revenue and profit growth over time.
• AI integration accelerating: Sezzle centralized its artificial intelligence initiatives by bringing back a former head of technology, focusing on projects like a customer support chatbot and AI shopping assistant. These tools are already enhancing operational efficiency, particularly by improving customer support productivity, and are expected to enable the business to scale without proportionately increasing staffing.
• Engagement and retention initiatives: The launch of the Earn tab and gamified features such as Sezzle Arcade and MoneyIQ have driven higher consumer engagement, evidenced by 13 million visits to the Earn tab during the quarter. These features are designed to increase app activity, retention, and ultimately subscription conversions.
• Underwriting expansion: The company purposefully broadened its credit underwriting criteria to support top-line growth, resulting in higher transaction-related costs and an increase in credit losses (PLR). However, management emphasized that these metrics remained within their expected range and are closely monitored to ensure portfolio quality.
• Leadership transition: CFO Karen Hartje announced her retirement, though she will remain with Sezzle for the next 12 months to ensure a smooth transition, marking a significant change to the executive team during a period of rapid growth and strategic realignment.

Drivers of Future Performance

Sezzle’s outlook is anchored by a focus on scaling its subscription base, leveraging AI for operational efficiency, and maintaining disciplined underwriting amidst evolving economic conditions.

• Subscription-first approach: Management expects the renewed focus on subscription products to enhance revenue predictability and profitability, citing higher user lifetime value compared to on-demand offerings. This shift may moderate gross merchandise volume (GMV) growth but is intended to boost core financial metrics over the coming quarters.
• AI-enhanced scalability: Centralizing and investing in artificial intelligence is expected to enable Sezzle to launch products more efficiently and scale customer support without adding significant headcount. Management believes this will contribute to long-term operating leverage and improved service quality.
• Credit risk management: The company is maintaining its provision for credit losses (PLR) target within the 2.5%-2.75% range, emphasizing flexibility to adjust underwriting standards as macroeconomic risks evolve. Management identified potential economic headwinds as a source of conservatism in future guidance.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace of subscriber additions and retention following the marketing shift back to subscriptions, (2) tangible efficiency gains and new product rollouts from Sezzle’s AI initiatives, and (3) the company’s ability to maintain disciplined underwriting as it expands credit access. Management’s execution on these fronts, alongside progress in its banking charter exploration, will be critical indicators of sustainable growth.

Sezzle currently trades at $69.50, up from $66.28 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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